Impact of Environmental Regulations on Inward FDI in Emerging Countries: A Static Panel Data Approach

The economic growth of any country depends largely on the entrance to international capital inflows, that is, external investment and its optimum allotment to components of different economic sectors. In several ways, foreign direct investment (FDI) helps by creating employment opportunities and rapid economic growth in emerging countries through capital flows in the developed countries and under developed countries. Many factors are affecting the FDI inflows in emerging countries among such determinants environmental issues are play a crucial role. Pollution control, air cleaner, water cleanness, etc., are the part of the environmental regulation in any country. Carbon dioxide (CO2) emission and sulphur dioxide (SO2) emission are major components of air pollution that have been widely used in empirical studies. The study intends to explore the impact of environmental regulations on FDI inflows in emerging countries along with governance factors and the macroeconomic fundamentals like per capita power consumption, trade openness, per capita GDP, etc. Based on the statistical data of 15 emerging countries from 2000 to 2015, the study follows the static panel data approach to empirically find the impact of environmental issues on FDI inflows. The results reveal that significant bonding realise between environmental regulations and FDI inflows in emerging countries. Based on the statistical evaluation however best our knowledge FDI is more attractive where lower regulations are established. For sake of simplicity environmental regulations are crucial to the multinational corporations (MNCs) for investment.